The Finance Bill of 2017 will be remembered as one of the most consequential pieces of legislation in independent India’s parliamentary history – not because of its budgetary allocations, but because of a series of amendments quietly inserted into it that fundamentally altered the framework of political funding and governmental oversight. Passed on 22 March 2017 as a Money Bill, it bypassed the Rajya Sabha and attracted surprisingly little sustained scrutiny from mainstream media at the time. Two and a half years later, many of its provisions continue to shape electoral bonds chief among them remain at the centre of intense legal and ethical debate.
To understand why these changes matter, one must first recognise that political parties in every democracy require funds to function. India was no exception. Until 2017, the legal regime governing corporate donations was governed principally by Section 182 of the Companies Act, 2013, which permitted companies to contribute a maximum of 7.5 per cent of their average net profits of the preceding three financial years to political parties, provided the donation was approved by the board and the name of the recipient party was disclosed in the company’s profit-and-loss account.
The Finance Act, 2017 swept away two critical restrictions:
- The 7.5 per cent ceiling on corporate donations was completely removed. A company may now contribute any amount, even if it exceeds its entire profit or is made when the company is in loss.
- The mandatory disclosure of the recipient political party’s name in the profit-and-loss account was deleted. Companies are now only required to state the total amount donated to political parties without specifying beneficiaries.
These amendments by themselves would have been significant, but the same Finance Act introduced an entirely new instrument – the Electoral Bond Scheme (notified in January 2018). Electoral bonds are interest-free bearer instruments that can be purchased from specified branches of the State Bank of India by any Indian citizen or company incorporated in India. The bonds are issued in denominations ranging from ₹1,000 to ₹1 crore and can be encashed only by an eligible political party through an account with an authorised bank. Crucially, neither the donor nor the political party is required to disclose the transaction to the public or even to the Election Commission in the usual contribution report. The only record remains with the State Bank of India, which is not mandated to reveal it.
The stated objective of the scheme was to bring “greater transparency” into political funding by reducing the role of cash while protecting donor anonymity to prevent political vendetta. Critics, including the Election Commission of India and the Reserve Bank of India (both of which had objected during the drafting stage), argued that the amendments actually achieved the opposite: they legalised anonymity on an unprecedented scale and removed almost every existing check on corporate disclosure requirement.
By 1 November 2019, electoral bonds had already emerged as the dominant mode of political funding. According to data released by the Association for Democratic Reforms (ADR), 94.5 per cent of all donations above ₹20,000 received by national parties between April 2018 and March 2019 came through electoral bonds. The Bharatiya Janata Party (BJP) encashed bonds worth approximately ₹1,700 crore during this period, while the Indian National Congress received around ₹146 crore through the same route. The near-total lack of donor identity made it impossible for citizens or analysts to trace whether a large infrastructure contract awarded in 2018–19 had any connection with bond purchases made months earlier.
Another amendment that drew sharp criticism was the deletion of the proviso to Section 182(3) of the Companies Act, which earlier prohibited companies older than three years from donating if they had taken loans or had not repaid fixed deposits. The removal effectively allowed newly floated shell companies or loss-making entities to channel funds without any statutory hurdle.
A separate but equally contentious change was brought about in the Finance Act, 2017 regarding foreign funding. Until 2016, the Foreign Contribution (Regulation) Act and the Representation of the People Act barred political parties from receiving contributions from foreign sources. The Finance Act, 2016 retrospectively amended the definition of “foreign source” under FCRA by excluding companies whose foreign shareholding was within the limits permitted under FEMA. The 2017 Act went further and removed the complete ban on foreign funding to political parties by amending Section 236 of the Finance Act retroactively from 1976. This meant that even 100 per cent foreign-owned Indian subsidiaries could now donate unlimited sums through electoral bonds without public disclosure.
On the enforcement side, the same Finance Bill expanded the powers of income-tax authorities under Section 132. The earlier provision allowed search and seizure only when the officer had “reason to believe” that income had escaped assessment. The 2017 amendment introduced a new Section 132(1A) that permitted surveys and retention of seized assets for up to six months without recording reasons in certain cases, and restricted the right of the affected person to approach courts during that period. While the government justified this as a measure against tax evasion, opposition leaders termed it a tool for potential harassment of critics and political opponents.
Perhaps the most procedurally controversial aspect was the classification of the Finance Bill itself as a “Money Bill” under Article 110 of the Constitution. A Money Bill can be introduced only in the Lok Sabha, and the Rajya Sabha can only make recommendations that the Lower House is free to reject. In 2017, several non-fiscal amendments – including changes to the Companies Act, the RBI Act, the Income Tax Act, and the FCRA – were bundled into the Finance Bill, 110(g), the catch-all clause that allows provisions “incidental” to finance matters. The Speaker’s decision to certify it as a Money Bill effectively sidelined the Upper House, where the ruling coalition lacked a majority at the time. This route had been used earlier for the Aadhaar Act, 2016, but the scale of unrelated amendments in 2017 was unprecedented.
The opposition parties, including Congress, Trinamool Congress, CPI(M), and others raised strong objections in the Lok Sabha on 22 March 2017. Congress leader Veerappa Moily called it a “brazen assault on democratic norms”. Rajya Sabha MP and former Finance Minister Yashwant Sinha later moved the Supreme Court challenging the use of the Money Bill route, but as of November 2019, the case remains pending.
Civil society and constitutional experts have argued that the amendments violate the basic structure doctrine by undermining free and fair elections, the right to information under Article 19(1)(a), and the level playing field essential for multi-party democracy. The Association for Democratic Reforms and Common Cause have consistently pointed out that when 95 per cent of funding sources are anonymous, voters are deprived of crucial information to judge potential quid pro quo.
The government’s defence has rested on three pillars: (i) electoral bonds reduce black money in politics since payments are through banking channels; (ii) donor anonymity protects against retaliation by rival parties when the government changes; (iii) global practice in many countries allows corporate donations with varying disclosure norms.
Yet international experience offers a mixed picture. The United States permits unlimited corporate funding post-Citizens United (2010) but mandates full public disclosure for contributions above certain thresholds. Germany and Canada impose strict caps and full disclosure. India now has unlimited anonymous funding – a combination that exists in very few democracies.
As of 1st November 2019, the electoral bond scheme continues to dominate political finance, with the 10th tranche of bonds sold in October 2019 alone raising over ₹1,000 crore according to SBI reports. The Supreme Court is yet to deliver its final verdict on the constitutional validity of the scheme, though an interim order in April 2019 directed parties to submit details of bonds to the Election Commission in sealed covers – a measure critics say is meaningless without public disclosure.
Whatever one’s political affiliation, the events of March 2017 and January 2018 mark a turning point. India moved from a system of capped and partially transparent corporate donations to one of unlimited and largely anonymous funding. Whether this enhances or erodes the health of Indian democracy is a question that citizens, courts, and future Finance Bills will have to answer in the years ahead.
The silence of much of the mainstream media in 2017, and the limited public debate even in 2019, stands in sharp contrast to the magnitude of the change. In a country where elections are the lifeblood of democratic legitimacy, the rules governing their funding should ideally command the widest possible discussion. Two and a half years after the Finance Bill, 2017 redrew those rules almost overnight, that discussion is overdue.
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